(SPONSORED) — Prices remain high across the board for consumers, but recent banking developments may be worsening the situation. Director of non-profit Data-Driven Economic Strategies (DDES) Tatiana Bailey explains what could have driven these issues.
“This week, inflation numbers were released, and I think it’s safe to say that inflation is entrenched with prices remaining elevated,” said Bailey. “The monkey wrench this month is that we had two bank failures which caused old-fashioned bank runs and some instability in the financial system.”
Bailey stated the chart shows prices are up six percent over the past year with all categories in positive territory.
In February, Bailey said prices decreased in energy-used cars and medical services. The categories that still increased in the past month were food, shelter and apparel.
The biggest contributor to February’s inflation was the shelter component, which is a big part of the Consumer Price Index. Although house price increases have slowed, February’s housing reports still show that nine in ten US housing markets have had modest price increases, said Bailey.
“Economists have been saying for about a year now that the Federal Reserve is in a particular pickle trying to tamp down inflation after a late start in doing anything about it,” stated Bailey.
According to Bailey, many say the Fed waited too long to raise interest rates after inflation started to take off. However, Bailey believes the late start should not have warranted the fast increase in rates by as much as they did.
“In fact, I think it’s possible that the two bank failures are in part caused to the draconian measures the Fed has taken,” said Bailey.
In the case of SBB, sudden rate increases put strain on tech companies that were already having to adjust to post-pandemic changes in their industry, per Bailey. The resulting instability in the financial system meant the Federal Reserve must now weigh in yet another factor in its mandate to reduce inflation.
The Consumer Price Index for the week of Monday, March 13, showed that prices are not materially coming down, according to Bailey.
“But the Fed also cannot ignore that the financial conditions have become very difficult for some companies and their executives,” stated Bailey. “If the Fed continues to raise interest rates, it risks more financial strain on companies that may be struggling in the current post-pandemic economic environment.”
Bailey claimed if the Fed does not raise interest rates, it risks continued inflationary trends that also hurt consumers who, so far, are doing a good job holding up the U.S. economy.
“Despite the two percent decrease in their inflation-adjusted earnings, just as inflation is entrenched, it appears that economic uncertainty for 2023 is also entrenched,” said Bailey.
